An investment portfolio (portfolio) that is well diversified across multiple sectors or a wide array of assets, typically involving a huge number of holdings. A granular portfolio is perceived to have a lower overall risk due to the effect of diversification. Diversification entails spreading the funds across a lot of different asset classes.This reduces the portfolio’s vulnerability to simultaneous downside risk across all its components (or sectors).

A portfolio with “strong granularity” have a huge number of positions that have low or zero correlation. This makes it more stable, with a low or mild risk profile. For example, if a certain sector of the market underperforms, its exposure is only limited to a small part of the overall risk. On the other hand, portfolios with “weak granularity” have smaller positions, typically with highly correlated components. This makes a portfolio less stable in terms of reaction to market risk.

A granular portfolio may be composed of either loans, equities, bonds, currencies, or mixed asset classes. Highly granular portfolios diversify away major part of the unsystematic risk (specific security risk), leaving it only exposed to systemic risk, which cannot be mitigated through diversification.